GameStop continues to do well in the current economy, but what if the company' …

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GameStop is the king of game retailers. While mammoth chains like Walmart may move more product, GameStop continues to post amazing profits off the back of used game sales and high-margin accessories. The company's first-quarter earnings are strong, but the guidance for the second quarter is rough, with the company relying on that used-game model to see it through. So what happens to the company when used game sales wither?

GameStop's net income from the quarter was $70.4 million, up from last year's $62.1 million. The biggest jump came from used game sales, which rose 32 percent. People like buying used when they can save a few bucks, and of course GameStop is happy to also take in their used games to resell if gamers need a few extra bucks to get the newest games.

But GameStop is utterly reliant on used game sales. While Walmart and Best Buy use games and systems to get people in the door to look at other, higher-margin items, GameStop has no other business model. New games have a razor-thin margin, and of course every copy they buy from the distributor and don't sell hurts the company; prices of games can fall incredibly fast if a game doesn't do as well as expected.

Have you noticed how annoyingly aggressive GameStop employees are when it comes to preorders, and how they seem to almost dislike selling new games without one? There are reasons for this: preorders allow them to control inventory, and if you're not working within their ecosystem of preorder/sale/trade-in-credit, you're the enemy. If a link in that chain fails, so does the business model.

Unfortunately, the used game model as GameStop used to enjoy it may be coming to an end. Amazon has gotten into the fight, and that's a heavy opponent. Amazon may have just begun to take in used games, but you've always been able to sell your games directly to other consumers via Amazon, and those deals almost always end with the sellers getting more cash than they would have received at GameStop. Sites like Goozex are also starting to pop up, allowing gamers to trade games directly with each other.

Then there's e-Play, which is looking to automate the process of selling your games. The draw here is that the company's kiosks will be wherever you do your other shopping, making them convenient. At GameStop, you lose value by choosing to get cash back, but e-Play offers credit back on your credit or debit card as a standard option. You also don't have to worry about sending your games via snail-mail or dealing with other people.

The idea sounds like a long shot, but so did the RedBox DVD rental service. Who wants to get movies from a box at their local grocery store when they have Netflix, Blockbuster, and all those other choices? Plenty of people, it turns out. RedBox locations are often swamped, with many people reporting multiple kiosks being added to their local locations to keep up with demand.

Looking longer-term, we can see that retail itself is slowly being cut out of the game-selling equation, and along with that (often) goes the ability for gamers to resell their used titles. Sony has long tested the waters of digital distribution, with Patapon 2 being sold in stores as a download voucher. You may be technically buying the title in a brick and mortar location, but there is no physical "game" to trade back in.

We recently spoke with Vogster, which went digital-only for the upcoming Unbound Saga. Why? Because you save money by not having to create a physical product, then fight with retailers for shelf space. Developers also don't have to fight used copies of their own games to make a sale; there is no used product to trade in.

It's possible that e-Play won't catch on, or that people won't want to trade with Amazon, or that digital distribution is a long way from reaching a mass audience. What's clear, however, is that publishers hate used-game sales, and they're going to try different tactics to cut down on the practice. But while used games continue to be big business, many other companies want a slice of that profitable pie, and they're going to keep trying until one of them succeeds.

GameStop doesn't appear able to survive at its current size without used games. Unfortunately for them, that's also a business likely to decline in the next five to ten years.